On New Year's Eve in downtown Los Angeles, hotel lobbies were crowded with revelers and guests, many of whom were planning to attend the Rose Parade or Rose Bowl football game in Pasadena the next day.
But the holiday crowds concealed the uncomfortable fact that the incoming year would probably not be a very good one for the hospitality business.
A single flight of stairs above the busy lobby at the Westin Bonaventure on Figueroa Street, an arcade of shops was almost entirely devoid of customers, and the "sale" signs posted in the windows looked worn with age.
Visits from splurging tourists have diminished, said Donald Kim, who has operated a boutique in the hotel for more than three decades. He still stocks pricey gifts with gold-plated brands such as Dior and Givenchy, but he has added low-cost knickknacks meant to appeal to the conventioneers who now make up the bulk of his customers.
"Those people only buy souvenirs such as T-shirts," he said. "Not handbags."
Fortunes of the once-highflying hotel industry fell hard at the end of 2008 and the prospects for 2009 look grim as anxious Americans cut travel spending and leave plenty of room at the inn.
Hotel operators have seen room reservations fall drastically as business travelers and vacationers cut down on trips. In 2009, U.S. hotels will suffer one of the greatest annual declines in occupancy and revenue in history, according to analysts.
That's terrible news for those in the hospitality industry, and the stocks of publicly traded hotel companies are taking a beating as investors flee.
In their suffering, however, many hotels will give travelers a break in the months ahead by lowering prices or offering incentives such as free meals in hopes of enticing more business.
"We just get creative," said Mehdi Eftekari, general manager of the Four Seasons Hotel in Los Angeles, where he says occupancy is down slightly. Incentive packages might include a free breakfast, car rental or spa treatment with room booking. Perhaps they will offer paying guests their third night free.
"We know that people have scaled back," he said. "The first-class traveler is traveling coach. The suite buyer is scaling back to a standard room."
The Four Seasons doesn't plan to lower room rates, but many others are. Analysts at PKF Hospitality Research predict net operating income will be down 14% at U.S. hotels in 2009, driven in part by room rate reductions.
In West Hollywood, the upscale Sunset Marquis Hotel and Villas cut some room prices by more than half during the holidays, offering two-bedroom villas that usually go for $2,400 a night for $700. Promotional rates for this year reduce basic junior suites from $390 a night to $305.
The lean times, which are expected to last into 2010, follow a nearly decade-long boom starting in the late 1990s. Hotel business dipped sharply in the recession of 2001 and 2002, especially in the months after the Sept. 11 terrorist attacks. But after that interruption, the years that followed were good ones for hoteliers as travelers resumed their free-spending ways.
Hotels sold at ever-increasing prices and properties were built all over the country to meet growing demand. Orange County saw the creation of fancy new inns such as the Resort at Pelican Hill in Newport Beach, St. Regis Monarch Beach Resort in Dana Point and the Hyatt Regency Huntington Beach Resort & Spa.
Several older hotels in Los Angeles County received multimillion-dollar upgrades and returned with higher room rates and often with new names. Among those reborn in recent years was the Palomar in Westwood, formerly a Doubletree; the Hotel Angeleno in Brentwood, formerly a Holiday Inn; and the London Hotel in West Hollywood, formerly the Bel Age Hotel.
Those hotels were planned in a flush economic era that now stands in stark contrast to today's new "normal" of frozen credit, home foreclosures and horror on Wall Street.
"This is a bad time in part because it is coming off of a great time," said Bruce Baltin, senior vice president of PKF Consulting Corp., which monitors the hotel industry. "The years 2005 and 2006 were all-time highlights for Southern California."
Much of 2007 was also great, followed by a gradual loss of momentum into 2008 as occupancy dwindled. Then came the credit market meltdown last summer and the ensuing economic crash. Business and leisure travelers quickly cut back.
"September was definitely a point of departure, when hotel revenues around the country began a free fall," said Los Angeles attorney Jim Butler, a hotel specialist and industry blogger. "Since Labor Day, business has been falling off a cliff."
